Some predicted that COVID-19 would lead to the collapse of the office market – but that hasn't happened
Corporations’ push to get employees back to on-site work is driving demand for new office space despite the impact of the COVID-19 pandemic.
The national office vacancy rate rose to 12.1% at the end of last year, according to a report by The Australian. But large companies are increasing their demand for office space even as the Omicron variant rages.
Investment bank Barrenjoey is close to committing to taking several floors in AMP Capital’s Quay Quarter Tower in Sydney, The Australian reported. Rival bank UBS is anchoring the development of a new building going up beside Chifley Tower, which is being developed by property funds firm Charter Hall. The firm is also developing a building in Melbourne anchored by Amazon.
The moves demonstrate that the market is turning and the rise in national office vacancy is mainly driven by the opening of new buildings planned ahead of the pandemic, The Australian reported.
Demand for office space has risen in every Australian capital city CBD, despite some predictions that the pandemic would lead to the collapse of the office market. Tenant demand rose an average of 1% across the nation’s CBDs and 0.7% in non-CBD markets. Every capital city except Sydney and Brisbane posted demand increases higher than their historical averages, The Australian reported.
Ken Morrison, chief executive of the Property Council, told the publication that the figures were encouraging.
“While many expected this once-in-100-year global pandemic to cause a major spike in office vacancy, these figures show that hasn’t eventuated,” Morrison said. “While aggregate vacancy levels have risen slightly from 11.9% to 12.1%, the driver of this has been new supply of office space, not a drop in demand.”
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Morrison said that most CBD businesses saw office space as “integral to their future, and that is reflected in the increased demand for office space over the past six months.”
“The comparison to the 1990s recession is stark,” he told The Australian. “During that crisis, vacancy rates blew out by a massive 15.6% over three years, whereas during the two years of the COVID-19 pandemic, they’ve shifted only 3.3%. The supply of office space across Australia has been above the historical average in three out of the last four reporting periods, which means since the onset of the pandemic, office developments have continued to come online, and demand for it has largely kept up. … There’s going to be more flexibility, but the jury is in and businesses have voted for offices and CBD.”
